Thursday, February 07, 2013

A few months ago, my car was burglarized; the side window was broken and my iPod taken. I had to pay $230 for the window repair and although the 2-year old iPod Touch may only have been worth $100, having it stolen was nonetheless very upsetting. On top of that, my husband had to spend $30 and two hours at a carwash cleaning up glass shards. At the end of the day, this crime incident cost my family about $360, not including the loss of time and music stored on the iPod.

Surprisingly, economic theory provides some comfort. According to the economic theory of crime and law enforcement advanced by economist Garry Becker in his famous 1968 article “Crime and Punishment: An Economic Approach” (www.jstor.org/stable/1830482), the societal cost of this crime is lower than the cost to me personally. Becker modeled societal losses from crime as the difference between damages brought about by criminal activities and gains to offenders, which can be summarized as follows:

Social Losses = Damages brought about by criminal activities - Gains to offenders

The complete theory accounts for the cost society bears to maintain the legal system and law enforcement, and also makes a number of important assumptions (for instance, that gains from crime are subject to diminishing returns). However, more importantly, the theory acknowledges that the person who stole my iPod is a member of society too, so although I lost a total of $360, not all of that value was truly lost. When formulated this way, the economic theory of crime enables law enforcement to calculate the “optimal” sanction. That is, when determining the level of resources to devote to crime prevention and punishment, society must weigh the benefit of reduced crime against the costs of law enforcement, incarceration, etc. If this equation ignores the gains to offenders, then the calculated level of punishment will be too high. Assuming the burglar can get $100 for my iPod and ignoring the value of the time spent on cleaning and the sentimental value of the lost music, the loss to society equals only $260. The optimal level of punishment for such a loss should therefore be lower than that associated with a true $360 loss.

Moreover, had the burglar been more skillful and stolen the iPod without breaking the car window, my loss would be exactly equal to the burglar’s gain. Certainly, I still would be upset, but in a larger scheme, this event would not create a noticeable effect on societal welfare. Well, the IRS would be unhappy about the situation too, although for a different reason. I can deduct my losses from the next year's taxes whereas, it is highly unlikely the burglar will ever report the gain as a taxable income.

Discussion questions:

1. If my burglar’s income is lower than my income and assuming diminishing returns to income, could this crime incident be viewed as a welfare improving redistribution of wealth?

2. Why wouldn’t societies be better off by increasing expenditures on law enforcement to such a level that there would be absolutely no crime?

3. Would societies be better off by adopting maximum punishment for all types of crime, violent and non-violent property crimes alike?